Seniors FM Report Final2

8/2/2019 Seniors FM Report Final2

1/36

Dabur India Ltd.

A Report

on

Financial Management

Submitted to:

Prof. Prakash Singh

Submitted by:

Aditya Bisen PGP24237

Ankit Godha PGP24243

Aseem Sen Gupta PGP24248

Ashutosh Agarwal PGP24249

M. Yugandhar PGP 24260

1


2/36

Contents

TABLE OF FIGURES ...................................................................................................... 3

Introduction ................................................................................................................. 5

Credit rating of the company .................................................................................... 7

Industry ................................................................................................................... 8

Major Competitors .................................................................................................... 9

................................................................................................................................ 10

Results at glance (Year on Year) ................................................................................ 11

Working capital......................................................................................................... 14

Working capital investment (across the industry) ...................................................... 15

Working capital by sales ......................................................................................... 16

Non cash working capital by sales ........................................................................ 17

Cash Management .................................................................................................... 18

Cash to Total Assets Ratio ...................................................................................... 18

Cash to Revenue Ratio ........................................................................................... 19

Cash by sales ratio ................................................................................................. 20

Similar to cash to revenue ratio, cash to sales ratio is higher than the industry

average as well as well above than the peer companies. There seems to be a huge

rise in the year 2005 in terms of cash by sales ratio. The acquisition of Balsara in

the year 2005 may had led to increase in cash requirement to be able to meet the

daily operation of the combined entity. However the higher ratio than the industry

average shows that Dabur is not able to maintain its cash as efficiently as the

industry and its peer are doing............................................................................... 21

Cash to Firm Value Ratio ........................................................................................ 21

Inventory ................................................................................................................... 22

Inventory to Sales Ratio ........................................................................................ 22

Inventory to Enterprise Value Ratio ....................................................................... 23

2


3/36

Number of days Sales in Inventory ........................................................................ 25

Inventory to Current Assets Ratio .......................................................................... 26

Account Receivable ................................................................................................... 28

Account receivables and sales ratio ....................................................................... 28

Accounts Receivable/ Enterprise Value ................................................................... 30

Account Payables ...................................................................................................... 31

Account Payables to Sales Ratio ............................................................................. 31

No. of days sales in Accounts Payables ................................................................. 32

Operating cycle and cash cycle ................................................................................. 34

References ................................................................................................................ 36

TABLE OF FIGURES

Figure 1: Working Capital..........................................................................................14

Figure 2: Net Profit....................................................................................................15

Figure 3: Working Capital by Sales ratio....................................................................16

Figure 4: Non-Cash Working Capital by Sales ratio....................................................17

Figure 5: Cash to Total Assets ratio...........................................................................18

Figure 6: Cash to Revenue ratio................................................................................19

Figure 7: Cash by Sales ratio.....................................................................................21

Figure 8: Cash to Firm Value ratio.............................................................................21

Figure 9: Comparison of Inventory to Sales Ratio......................................................23

Figure 10: Comparison of Inventory to Enterprise Value Ratio...................................25

Figure 11: Comparison of No. of days sales in inventory............................................26

Figure 12: Comparison of No. of days Sales in inventory...........................................27

Figure 13: Accounts Receivables to Sales ratio..........................................................29

Figure 14: No of Days Sales in Accounts Receivables................................................29

Figure 15: Accounts Receivables to Enterprise Value ratio........................................30

3


4/36

Figure 16: Accounts Payables to Sales ratio...............................................................32

Figure 17: No of Days Sales in Accounts Payables ratio.............................................33

4


5/36

Introduction

The story of Dabur began with a visionary endeavor by Dr S.K. Burman to provide effective and

affordable natural cures for the killer diseases of those days like cholera, malaria and plague for

ordinary people in far-flung villages in Bengal. Soon Daktar (Doctor) Burman became popular

for his effective cures, and that is how his venture Dabur got its namederived from the

Devanagri rendition of Daktar Burman. Dr. Burman set up Dabur in 1884 to produce and dispense

Ayurvedic medicines, with the vision of good health for all. More than a century later, by 1990s

Dabur had grown manifold. Over the years, the family has understood the need for incorporating a

professional management team that would be able to launch Dabur onto a high growth path in the

emerging competitive environment. Therefore, in 1998, the Burman family started handing over

the management of the company to professionals and down-scaled its direct involvement in day-to-day operations. In 2003, with the approval of the Delhi High Court, the company demerged its

pharmaceutical business to a new company, Dabur Pharma Limited, to unlock value in both

pharma & FMCG business. As a result, the entire pharma business was transferred to the said

company. By 2005, Dabur India had emerged as a leading nature-based health and family care

products company with eight manufacturing units, 5,000 distributors and over 1.5 million retail

outlets spread all over India and abroad. Dabur crossed a turnover of Rs 1, 000 crores in year

200001, and further Rs 1,300 crore in 200405; thereby establishing its market leadership in its

line of activity. Its main product lines include:

Hair-care: Vatika, Dabur Amla Hair Oil

Health supplements: Glocose-D, Dabur Honey, Chyawanprash, Real

Digestives and confectionaries: Hajmola, Anardana Churan

Oral care: Dabur Lal Dant Manjan, Dabur Red Toothpaste

Baby and skin care: Dabur Tel, Gulabari

Dabur is one of Indias largest FMCG companies, specializing in natural health care, personal care,

and food products. It has well-established brands in niche categories such as Dabur Chyawanprash

(63 per cent market share in the chyawanprash segment), Dabur Lal Danth Manjan (29 per cent

5


6/36

market share in the herbal tooth powder segment), and herbal hair oil products Vatika and Anmol

(33 per cent market share in the hair oil market other than pure coconut oil). The acquisition of the

Balsara units has further improved Daburs market position in the oral care segment. Dabur is one

of the largest producers of ayurvedic drugs in India, a niche segment marked by the presence of a

few national and numerous unorganized players. Dabur achieved 9.2 per cent growth in ayurvedic

drugs in 2006-07, well above the industry average of around 5 per cent, through new initiatives

such as the launch of over-the-counter (OTC) brands and variants, opening of Dabur Vaid centres,

and organizing health camps and vaid meet.

Dabur is leveraging on its strong positioning based on the herbal and natural platform to expand

into other large segments, such as soaps and shampoos, in the FMCG industry. The growing

popularity of herbal and natural products has led to other established FMCG players launching

products in these segments. Dabur is expected to face stiff competition in these categories, before it

can gain meaningful market shares in them.

Dabur operates through three business lines in India: the consumer care division, comprising

FMCG products; the consumer health division, comprising traditional ayurvedic products; and the

foods division In 2003-04, Dabur transferred its pharmaceutical business to Dabur Pharma Ltd.

Dabur acquired three companies of the Balsara group for Rs.1.43 billion in January 2005 along

with brands Promise, Babool and Meswak (in oral care); and Odomos, Odonil and Odopic (in

home care).

For 2006-07, Dabur reported a consolidated profit after tax (PAT) of Rs.2.81 billion on net sales of

Rs.20.41 billion, as against a PAT of Rs.2.08 billion on net sales of 17.23 billion in 2005-06. For

the nine months ended December 31, 2007, Dabur reported a consolidated PAT of Rs.2.5 billion

on net sales of Rs.17.55 billion, vis--vis a PAT of Rs.2.04 billion on net sales of Rs.15.12 billion

for the corresponding period, the previous year.

6


7/36

Credit rating of the company

CRISIL AA+ and P1+ for DABUR INDIAs bank facilities

Rs. 1000 Million Long Term Bank Facilities1 AA+/Positive(Assigned)

Rs. 325 Million Short Term Bank Facilities2 P1+(Assigned)

Rs.200 Million Non-Convertible Debenture Programme AA+/Positive(Reaffirmed)

Fixed Deposit Programme FAAA/Stable(Reaffirmed)

Rs.600 Million Commercial Paper Programme P1+(Reaffirmed)

1 Interchangeable between Cash Credit, Cash Credit (Book Debt), Drawee Bill, Packing Credit, Bill Discountingand Post Shipment Credit.2 Interchangeable between Letter of Credit and Bank guarantees.

CRISILs ratings on Dabur India Ltds (Daburs) debt programmes reflect the companys healthy

and improving financial profile, strong market position in the niche ayurvedic and herbal fast

7


8/36

moving consumer goods (FMCG) segments with a diversified product portfolio, and strong

national presence in generic ayurvedic products. These rating strengths are partially offset by the

increasing competition in the herbal /natural consumer goods industry.

Daburs healthy financial risk profile is marked by consistent growth in profitability, steady cash

generation, robust capital structure, high returns on capital employed (RoCE), and favorable debt

protection measures. Daburs operating margins have improved to 17 per cent in 2006-07 (refers to

financial year, April 1 to March 31) from 13.7 per cent in 2003-04. The benefits of improved

profitability also reflect in a RoCE of 50 per cent in 2006-07, Daburs highest RoCE level in the

past decade. The company enjoys healthy debt protection measures: as on March 31 2007, its

interest coverage and net cash accrual to total debt ratios were comfortable at 23.9 times and 1.1

times, respectively.

Outlook: Positive

CRISIL expects that Daburs healthy financial profile will continue to improve, and that the

company will sustain its strong market position in the consumer care, consumer healthcare, and

foods businesses. The rating may be upgraded if Dabur sustains its robust capital structure, and

achieves growth rates that are higher than those of the industry through organic and inorganic

strategies. Conversely, the outlook may be revised to Stable if the company takes on any large

debt-funded capital expenditure programme or acquisition, thus significantly impacting itsfinancial risk profile.

Industry

The Indian FMCG sector is the fourth largest in the economy. At present, urban India accounts for

66% of total FMCG consumption, with rural India accounts for the remaining 34%. However, rural

India accounts for more than 40% of the consumption in major FMCG categories such as personal

care, fabric care and hot beverages. FMCG companies cannot overlook these households as they

account for 12.2% of the worlds population. Around 70 % of the total households in India (188

million) reside in the rural areas. The total numbers of rural households are expected to rise from

135 mn in 2001- 02 to 153 mn in 2009 - 10. This presents the largest potential market in the world.

FMCG in India has a strong and competitive MNC presence across the entire value chain. It has

been predicted that the FMCG market will reach to US$ 33.4 billion in 2015 from US$11.6 billion

8


9/36

in 2003. The middle class and the rural segments of the Indian population are the most promising

market for FMCG, and give brand makers the opportunity to convert them to branded products.

Most of the product categories like jams, toothpaste, skin care and shampoos, in India, have low

per capita consumption as well as low penetration level, but the potential for growth is huge.

Lower and middle-income groups account for over 60% of the total FMCG sales. Rural markets

account for 56% of the total domestic FMCG demand. Low-priced products are driving the sales

volume in FMCG. Unlike the perception that the FMCG sector is a producer of luxury items

targeted at the elite, in reality, the sector meets the everyday needs of the masses.

FMCG companies are fighting to stand out amid the clutter of a massively vigorous and

strengthening consumer market. To keep consumers interested, India's brands are diversifying

well-loved favorites by entering new FMCG territory where margin are good and rising the

product price to beat the margin pressure. Nevertheless, the FMCG growth story is here to stay.

According to a survey on fast moving consumer goods (FMCG) industry undertaken by Federation

of Indian Chambers of Commerce and Industry (FICCI), the growth momentum is likely to

continue in the current fiscal as well, spurred by lifestyle category goods. It includes products

categories like skin care, shampoos, deodorants, anti-aging solutions, fairness products and various

men's products.

The FMCG sector resorted to hike in product prices, tinkering of pack size etc to tackle the spike

in commodity prices. But these gains were largely held despite the softening of commodity prices.

Meanwhile, the demand growth remains strong both in the urban and rural areas. Lower input

prices, better product prices and improved demand together should enable the FMCG sector to

report better numbers in the quarter ending September 2008.

Major Competitors

Emami

In the seventies, Kolkata based industrialists R S Agarwal and R S Goenka was jointly promoted

the business of Himani Ltd. Over the last three decades, Himani has not only emerged as a leading

player in the field of personal and health care products in India and also changed its name as

Emami Ltd. Toiletries, Medicines and Food products are the main Products of the company. The

9


10/36

company is headquartered in Kolkata and has offices across 27 Indian cities. Emami has also

markets its products in over 30 countries.

Marico

Marico Limited (ML), a leading FMCG player was incorporated on 13th October 1988 under the

name of Marico Foods Limited. Mario's Products and Services in Hair Care, Skin Care and

Healthy Foods reach out to more than 20 countries in the Middle East, Asian sub-continent,

Australia and USA. With a extensive distribution network of more than 2.5 Million outlets in India

and overseas, the company markets well-known brands such as Parachute, Saffola, Kaya, Sundari

and Fiancee to name few, most of which enjoy leadership positions with significant market shares

in respective categories.

Godrej

Godrej Consumer Products (GCPL) is a major player in the Indian FMCG market with leadership

in personal, hair, household and fabric care segments. Promoted by Godrej & Boyce

Manufacturing Company, GCPL was formed in November 2000 to take over the consumer

products division of Godrej Soaps pursuant to a scheme of demerger which was effective from 1st

April, 2001. The company is ranked as seventh in the list of Top-25 companies. The company is

among the largest marketer of toilet soaps in the country with leading brands such as Cinthol,

Fairglow, Nikhar, & Allcare brand. GCPL is also the leader in the hair colour category in India

and has a vast product range.

10


11/36

Results at glance (Year on Year)

200803

200703

200603

200503

200403

Equity Paid Up 86.4 86.29 57.33 28.64 28.62

Net worth 528.32

403.19

447.87

338.07

268.65

Capital Employed 545.66

423.27

468.44

386.7 308.46

Gross Block 467.94

404.3 328.23

317.46

268.16

Net Working Capital ( Incl. Def.Tax)

-33.09 19.06 -38.35 -81.66 -24.3

Current Assets ( Incl. Def. Tax) 576.82

397.78

285.68

253.35

219.89

Current Liabilities and Provisions( Incl. Def. Tax)

609.91

378.72

324.03

335.01

244.19

Total Assets/Liabilities(excluding Revaluation & Write-off)

1141.6

782.17

759.6 715.9 546.06

Gross Sales 2117.8

1637.4

1369.7

1268.7

1148

Net Sales 2083.4

1600.4

1342.8

1226.2

1082.6

Other Income 29.36 19.31 22.34 11.97 11.73

Value Of Output 2086.4

1622.6

1338.6

1234.2

1056.8

Cost of Production 1256.

8

970.0

2

725.9

1

687.0

3

612.3

7Selling Cost 336.34

261.07

204.73

217.04

199.54

PBIDT 400.91

313.01

239.64

186.77

136.77

PBDT 390.92

306.2 233.91

182.11

129.19

PBIT 375.16

291.03

220.59

169.67

121.02

PBT 365.17

284.22

214.86

165.01

113.44

PAT 316.7

7

252.0

8

189.0

8

148.0

1

101.2

Book Value (Unit Curr) 6.11 4.67 7.81 11.8 9.39

Market Capitalisation 9495.4

8193.2

7106.1

3179 2251.8

EPS (annualised) (Unit Curr) 3.41 2.72 3.05 4.83 3.28

Dividend (annualised%) 150 175 250 250 200

Payout (%) 43.97 51.98 57.32 51.79 60.99

Cash Flow From Operating 313.2 230.6 194.3 206.9 198.5

11


12/36

Activities 9 4 9 5

Cash Flow From InvestingActivities

-179.7

7

-60.57 -27.51 -147.8

5

-140.1

6Cash Flow From FinancingActivities

-119.3 -164.2

3

-139.4

4

-60.38 -67.45

Rate of Growth (%)

ROG-Net Worth (%) 31.04 -9.98 32.48 25.84 -34.65

ROG-Capital Employed (%) 28.92 -9.64 21.14 25.36 -40.81

ROG-Gross Block (%) 15.74 23.18 3.39 18.38 -9.77

ROG-Gross Sales (%) 29.34 19.54 7.96 10.52 -6.84

ROG-Net Sales (%) 30.18 19.19 9.51 13.27 -6.59

ROG-Cost of Production (%) 28.38 36.53 6.72 14.38 -10.19

ROG-Total Assets (%) 45.96 2.97 6.1 31.1 -25.69

ROG-PBIDT (%) 28.08 30.62 28.31 36.56 0.58

ROG-PBDT (%) 27.67 30.91 28.44 40.96 9.87ROG-PBIT (%) 28.91 31.93 30.01 40.2 6.21

ROG-PBT (%) 28.48 32.28 30.21 45.46 18.74

ROG-PAT (%) 25.66 33.32 27.75 46.25 19.17

ROG-Market Capitalisation (%) 15.89 15.3 123.53

41.18 119.46

Key Ratios

Debt-Equity Ratio 0.04 0.05 0.09 0.15 0.22

Long Term Debt-Equity Ratio 0.04 0.05 0.06 0.11 0.17

Current Ratio 0.99 0.97 0.79 0.79 1.27

Turnover Ratios

Fixed Assets Ratio 4.86 4.47 4.24 4.33 4.06

Inventory Ratio 11.81 12 11.24 10.68 7.97

Debtors Ratio 26.24 37.25 35.94 27.78 14.46

Interest Cover Ratio 37.55 42.74 38.5 36.41 15.97

ROCE (%) 80.23 69.37 54.04 49.7 29.5

RONW (%) 68.01 59.24 48.12 48.79 29.78

Debtors Velocity (Days) 14 11 13 12 19

Creditors Velocity (Days) 52 46 46 43 41

The increase in ROCE is particularly noteworthy, as it has happened on the back of addition of

fixed assets to the tune of Rs. 124 crore across Dabur operations in India and abroad. While much

of this has been due to higher profits, this also reflects the companys strong cash position. In a

year of investments, DIL has actually reduced its consolidated debt outstanding from Rs. 159.9

crore at the end of 2006-07 to Rs. 99.2 crore at the end of 2007-08. In addition, the company has

12


13/36

further tightened its working capital management - net working capital was reduced to 6 days of

sales in 2007-08 compared to 22 days in 2007-08 on like to like basis, after adjusting for dividend

which was paid in March last year.

13


14/36

Working capital

Dabur has a negative working capital of -29.82 crores as on March 2008. As can be seen from the

graph there was an upswing followed by a downswing in both the working capital and the non-

cash working capital. The table below shows the major component of the current asset for Dabur

from the year 2004-2008.

2008 2007 2006 2005 2004

Inventories 201.15 157.37 115.61 128.03 109.52

Sundry Debtors 100.46 60.98 26.94 49.28 42.07

Cash and Bank 68.26 50.25 38.04 10.65 11.89

Loans and Advances 182.94 127.81 103.77 64.01 55.84

Total Current Assets 552.81 396.41 284.36 251.97 219.32

Current Liabilities 317.22 277.7 193.42 238.38 164.52

Provisions 265.41 78.38 113.89 83.85 71.7

Total Current Liabilities 582.63 356.08 307.31 322.23 236.22

Table 1: Current Assets and Current Liabilities

-120

-100

-80

-60

-40

-20

0

20

40

60

2003 2004 2005 2006 2007 2008 2009

Year

Rsin Working capital

Non cash working capital

FIGURE 1: WORKING CAPITAL

14


15/36

Negative working capital

The current liability of the Dabur exceeds its current asset which does indicate that company may

face a short term solvency problem. At the same time company is showing high growth in

profitability. Figure below shows the profitability of the company for last five years.

Net profit

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008 2009

year

Profit(inCr)

profit

FIGURE 2: NET PROFIT

Company reported a profit of 316 crore in 2008 with the growth of 25.6% as compared to 2007.

The company has an impressive market share in its product line and is the fourth largest FMCG

company in India.

What can be inferred is that in order to provide finance for expansion and diversification projects,

a company have cut down on inventories, reduce the credit period to customers while at the same

time seek extended credit facilities from its suppliers of raw materials, other goods and services.

Also, it tried to manage with as little cash in hand as possible. As a result, the current assets

represented by inventories, debtors and cash would be reduced and current liabilities represented

by creditors would increase resulting in negative working capital.

Working capital investment (across the industry)

In this section, we will discuss working capital investments of Dabur and will compare it with

other firms in the same industry. We will also compare the financial details of the firm with

Industry average.

15


16/36

Working capital by sales

The table below represents the working capital to sales ratio of Dabur India ltd. and other firms in

the same peer group from year 2004 to 2008. The table also contains information about the

industry average.

2008 2007 2006 2005 2004

Industry 0.06 0.03 0.10 0.10 0.10

Dabur -0.01 0.03 -0.02 -0.06 -0.02

Marico 0.05 0.01 0.03 0.04 0.02

Emami 0.23 0.19 0.27 0.38 0.40

Godrej 4.99 18.98 8.07 10.26 18.24

Table 3: Working Capital by Sales ratio

Working capital and sales ratio

-0.1

0

0.1

0.2

0.3

0.4

0.5

2003 2004 2005 2006 2007 2008 2009

year

Rati

Industry

Dabur

Marico

Emami

Godrej

FIGURE 3: WORKING CAPITAL BY SALES RATIO

Dabur have one of the lowest working capital by sales ratio as compared to the industry (in fact the

ratio is negative for Dabur). This means that Dabur is utilizing its capital fully and not blocking it

in working capital. However working capital also contain a cash which is not available and not tied

up hence a better ratio for analysis would be non-cash working capital by sales.

16


17/36

Non cash working capital by sales

The table below represents the non cash working capital to sales ratio of Dabur India ltd. and other

firms in the same peer group from year 2004 to 2008. The table also contains information about the

industry average.

2008 2007 2006 2005 2004

Industry 0.040928 0.005606 0.080154 0.084332 0.074462

Dabur -0.04708 -0.0062 -0.04542 -0.06598 -0.02659

Marico 0.040552 0.00472 0.027478 0.033141 0.016113

Emami 0.226705 0.15421 0.264657 0.381599 0.394531

Godrej -0.03643 -0.06559 -0.08537 -0.08259 -0.08905

Table 4: Non-Cash Working Capital by Sales ratio

Non-cash working capital and sales ratio

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

2003 2004 2005 2006 2007 2008 2009

year

Ratio

Industry

Dabur

Marico

EmamiGodrej

FIGURE 4: NON-CASH WORKING CAPITAL BY SALES RATIO

Here again Dabur have a negative non-cash working capital hence have a lowest ratio among its

peer group. This is the capital which is actually tied up and not available (after removing cash), its

negative value indicate that that Dabur have done good job in terms of releasing the capital

blocked in working capital but again buts itself in risky position in terms of meeting its short term

liabilities.

17


18/36

Cash Management

The figures provided are over 5 years. One notices sudden changes in figures of across the heads

offered in the years 2003-04 and 2005-06. The cash figures Dabur see an abrupt drop in the 2003-

04. This can be attributed to the de-merger of Dabur Pharma from Dabur India ltd. Its acquisition

of Balsara Hygiene and Home Care business in 2005 explains the change in cash figures for that

period as Dabur would now have greater cash requirements to sustain its working capital cycle.

Cash to Total Assets Ratio

Dabur Industry Marico Godrej Emami

20080.125

10.0693 0.0511 0.0696 0.0086

2007

0.118

7 0.0866 0.0707 0.0971 0.0723

20060.081

20.0465 0.0561 0.1695 0.0022

20050.027

50.0299 0.0630 0.1602 0.0010

20040.038

50.0608 0.1250 0.2097 0.0014

Table 5: Cash to Total Assets ratio

FIGURE 5: CASH TO TOTAL ASSETS RATIO

18


19/36

The Cash to Total Assets Ratio reflects the amount of cash that the business can generate with

respect to its overall size. This becomes a very important tool when analyzing a companys

profitability. A company may be profitable, but if it doesnt have enough cash on hand to pay its

bills, then it is in trouble. By and large, Dabur follows industry trends, the relevant ratio moves

with the industry. However, upon doing a peer group analysis, we find that the cash to total assets

ratio is amongst the highest implying poor cash management.

Cash to Revenue Ratio


20080.031

80.0230 0.0188 0.0214 0.0046

20070.030

30.0245 0.0155 0.0234 0.0303

20060.027

30.0225 0.0176 0.0148 0.0013

20050.008

30.0131 0.0112 0.0097 0.0006

20040.010

30.0241 0.0148 0.0150 0.0008

Table 6: Cash to Revenue ratio

FIGURE 6: CASH TO REVENUE RATIO

19


20/36

The cash to revenue ratio for a company indicates the effectiveness of the firm's credit and

collection policies, and the amount of cash required as buffer for unexpected delays in cash

collection. In short, it reflects the companys ability to convert sales into cash. It would be

worrisome to see a company's sales grow without a parallel growth in operating cash flow. Positive

and negative changes in a company's terms of sale and/or the collection experience of its accounts

receivable will show up in this indicator.

The sudden rise in this ratio following 2005 again is for the same reason as mentioned before, the

Balsara acquisition. Overall, the general movement is in line with the industry, but exceeding

industry average in the past few years.

Cash by sales ratio

The table below represents the Cash to sales ratio of Dabur India ltd. and other firms in the same

peer group from year 2004 to 2008. The table also contains information about the industry average.

2008 2007 2006 2005 2004

Industry 0.02 0.02 0.02 0.01 0.02

Dabur 0.03 0.03 0.03 0.01 0.01

Marico 0.01 0.01 0.01 0.00 0.01

Emami 0.00 0.04 0.00 0.00 0.00

Godrej 0.02 0.03 0.02 0.02 0.03

Table 7: Cash by Sales ratio

Cash by sales ratio

-0.005

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

2003 2004 2005 2006 2007 2008 2009

year

Ratio

Industry

Dabur

Marico

Emami

Godrej

20


21/36

FIGURE 7: CASH BY SALES RATIO

Similar to cash to revenue ratio, cash to sales ratio is higher than the industry average as well as

well above than the peer companies. There seems to be a huge rise in the year 2005 in terms

of cash by sales ratio. The acquisition of Balsara in the year 2005 may had led to increase in

cash requirement to be able to meet the daily operation of the combined entity. However the

higher ratio than the industry average shows that Dabur is not able to maintain its cash as

efficiently as the industry and its peer are doing.

Cash to Firm Value Ratio


2008 0.007 0.006 0.007 0.006 0.002

2007 0.006 0.007 0.006 0.007 0.010

2006 0.005 0.005 0.006 0.004 0.000

2005 0.003 0.005 0.004 0.003 0.000

2004 0.005 0.012 0.005 0.004 0.000

Table 8: Cash to Firm Value ratio

FIGURE 8: CASH TO FIRM VALUE RATIO

We have taken firm value to be the same as enterprise value as it too is a measure of the company's

value. Enterprise Value is calculated as market cap plus debt, minority interest and preferred

shares, minus total cash and cash equivalents. The inverse of this ratio is generally used as a

valuation multiple. Here we see that the Cash to Firm value ratio, with the exception of Emami, is

21


22/36

almost the same as its peers and the industry in general. There exist no sudden changes in this ratio

except the one in 2005. Thus we see, that in general cash ratios for Dabur follow industry averages

with the exception of the disruption on account of the Balsara acquisition in 2005.

InventoryGiven the large variety of products that are manufactured and marketed, and hundreds of different

raw materials used by the company, accurate forecasting of inventory is very important for

effective working capital management. A wrong forecast can lead to piles of inventory, thus

blocking unnecessary investment and increasing storage cost. After the new management took

over, an inventory management system was instituted involving all related departments like

procurement, finance, manufacturing, sales and supply chain.

As far as possible, the company procures materials following the Just-in-Time (JIT) approach.

However, JIT inventory system is not applicable for all inputs. Many of its inputs are agricultural

products that are available at cheaper prices seasonally when fresh crops arrive into the market. If

the annual requirement of raw materials is not purchased during this period, the company may

have to pay much higher prices later. As a result, the company must procure such raw materials

within the period of their seasonal abundance and preserve them for later use. This could be one

possible reason for Inventory being a high proportion of the Current Assets.

Inventory to Sales Ratio

The table below represents the Inventory to Sales ratio of Dabur India Ltd and other firms in the

same peer group from year 2004 to 2008. The table also contains information about the industry

average.

Inventory/ Sales

2008

2007

2006

2005

2004

Dabur 0.097 0.098 0.086 0.104 0.101

Industry 0.120 0.114 0.154 0.140 0.118

Emami 0.068 0.079 0.119 0.163 0.139

GodrejConsumer 0.180 0.147 0.127 0.122 0.090

22


23/36

Marico 0.139 0.143 0.114 0.119 0.111

Table 9: Inventory to Sales Ratio - Peer Group Analysis

The Figure shows that, the inventory to sales ratio of the firm is below the industry average in all

the years from 2004 to 2008. The ratio of Dabur is below that of the competitors during 2004 to2008, except for Emami in the years 2007 and 2008. Also, there is not much variation in the

inventory to sales ratio for the firm and from 2004 to 2008. Better inventory management might

have helped Dabur India Ltd to maintain lesser inventory than its competitors. Hence its ratio of

Inventory to Sales is lesser than that of the industry average. This is good for the firm as its

working capital requirements will reduce as the inventory reduces. Since inventory is a major

component of the working capital, better inventory management will help the firm.

Inventory/Sales

0.000

0.020

0.040

0.060

0.080

0.100

0.120

0.140

0.160

0.180

0.200

2003 2004 2005 2006 2007 2008 2009

Year

Inve

ntory/Sales

Dabur

Industry

Emami

Godrej Consumer

Marico

FIGURE 9: COMPARISON OF INVENTORY TO SALES RATIO

Inventory to Enterprise Value Ratio

The table below represents the Inventory to Enterprise Value ratio of Dabur India Ltd and other


23


24/36

industry average. The Figure shows that, the Inventory to Enterprise Value ratio of the firm is well

below the industry average and all its competitors in the years 2004 to 2008.

Inventory/ Enterprise value

2008

2007

2006

2005

2004

Dabur0.02

10.01

90.01

60.04

00.04

8

Industry0.03

30.03

30.05

00.08

90.12

1

Emami0.02

20.03

40.03

40.07

20.07

9

GodrejConsumer

0.050

0.034

0.021

0.042

0.052

Marico0.05

00.05

10.03

60.07

70.12

7

Table 10: Comparison of Inventory to Enterprise Value Ratio

24


25/36

Inventory/Enterprise Value

0.000

0.020

0.040

0.060

0.080

0.100

0.120

0.140

2003 2004 2005 2006 2007 2008 2009

Year

Inventory/EV Dabur

Industry

Emami

Godrej Consumer

Marico

FIGURE 10: COMPARISON OF INVENTORY TO ENTERPRISE VALUE RATIO

Number of days Sales in Inventory

Number of days sales in inventory has consistently decreased for Dabur India Ltd from the year

2004 to 2008 and it is well above the industry average. It was 45 days in the year 2004 and hasreduced to 30 in the year 2008. Around 30 days of sales of Dabur India Ltd is stuck in the

inventory, compared to industry average of 43 days in 2008. The number of days of inventory is

below that of the competitors during 2004 to 2008, except for Emami in 2007 and 2008. Dabur

India Ltd needs to look into reducing the number of days sales so as to better manage its working

capital.

No. of days sales in Inventory

2008 2007 2006 2005 2004

Dabur 30 30 32 34 45

Industry 43 41 55 50 43

Emami 25 29 43 59 50

25


26/36

GodrejConsumer 65 53 46 44 32

Marico 50 51 41 43 40

Table 11: Comparison of No. of days sales in inventory

No. of days Sales in Inventory

0.000

10.000

20.000

30.000

40.000

50.000

60.000

70.000

2003 2004 2005 2006 2007 2008 2009

Year

No.ofdaysSalesinInventory

Dabur

Industry

Emami

Godrej Consumer

Marico

FIGURE 11: COMPARISON OF NO. OF DAYS SALES IN INVENTORY

Inventory to Current Assets Ratio

In 2008, Inventory is a large component of current assets of Dabur India Ltd. In 2004, it was 49%

but it has reduced to around 36% in 2008. Dabur India Ltd needs to look into the reasons of

holding such a large amount of inventory. This trend in the ratio clearly indicates that the inventory

holding position of Dabur India Ltd has improved over the years and will help a lot in better

working capital management. For Emami this percentage is only 15% and this indicates that there

is much scope for improvement in the position of Dabur with respect in inventory.

Inventory/ Current Assets

2008 2007 2006 2005 2004

Dabur 0.36 0.39 0.40 0.50 0.49

26


27/36

4 7 7 8 9

Industry

0.40

2

0.45

2

0.47

8

0.47

1

0.44

5

Emami

0.15

7

0.23

9

0.30

6

0.35

2

0.31

7

Godrej

Consumer

0.63

0

0.60

3

0.72

7

0.71

6

0.58

1

Marico

0.45

2

0.52

8

0.36

8

0.42

0

0.50

0

Table 12: Comparison of Inventory to Current Assets Ratio

The following figure shows that there is a mixed trend of the ratio of the Dabur compared to

industry average and the competitors. The ratios are above industry average in 2004 and 2005 butit is below the industry average from 2006 to 2008. The ratio of Dabur is well below that of Godrej

Consumer but it is well above that of Emami.

Inventory/Current Assets

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

2003 2004 2005 2006 2007 2008 2009

Year

Inventory/CurrentAssets

Dabur

Industry

Emami

Godrej Consumer

Marico

FIGURE 12: COMPARISON OF NO. OF DAYS SALES IN INVENTORY

27


28/36

Account Receivable

Account receivables and sales ratio

The company has mainly three types of customers stockists, institutions and international/ export

customers. The credit terms to the stockists vary from 110 days. Institutions like canteen stores

department (CSD), large stores, hotels and modern malls are offered soft payment terms that may

range from 15 to 90 days. Similarly, credit terms negotiated with export customers would depend

on the international competition and product pricing.

The table below represents the Account Receivables to sales ratio of Dabur India ltd. and other


industry average.

2008 2007 2006 2005 2004

Industry 0.036276 0.035802 0.063061 0.076567 0.068188

Dabur 0.048219 0.038102 0.020063 0.040188 0.038861

Marico 0.008136 0.008799 0.010022 0.010965 0.007964

Emami 0.058299 0.088738 0.121909 0.161113 0.203859

Godrej consumer 0.013751 0.012927 0.009945 0.009209 0.02695

Table 13: Accounts Receivables to Sales ratio

28


29/36

Account receivables and sales ratio

0

0.05

0.1

0.15

0.2

0.25

2003 2004 2005 2006 2007 2008 2009year

Rati

Industry

Dabur

Marico

Emami

Godrej consumer

FIGURE 13: ACCOUNTS RECEIVABLES TO SALES RATIO

No of days in sales in Account receivables

0

10

20

30

40

50

60

70

80

2003 2004 2005 2006 2007 2008 2009

year

Rati

IndustryDabur

Marico

Emami

Godrej consumer

FIGURE 14: NO OF DAYS SALES IN ACCOUNTS RECEIVABLESAs seen from the graph above Dabur had lower account receivable and sale ratio till 2007 (and

hence no of days in sales in account receivables) than the industry average but have increased a

little from the average in the year 2008.

In 2008 the ratio for Dabur is 0.048 which means that 17.6 days of sales are there in the account

receivables. Among its peer group Marico was doing quite good with 2.096 days of sales in

29


30/36

account receivables and Emami is doing worse than Dabur with 21.2 days of sales in the account

receivables. Further it can be seen from the graph that over the years the industry average have

improved but for Dabur the ratio have worsen in last two years this may be due to poor

performance of its collection department or the relax credit policy of Dabur to boost up its sales.

Accounts Receivable/ Enterprise Value

2008 2007 2006 2005 2004Indust

ry 0.01 0.01 0.02 0.049 0.07

Emami 0.018 0.038 0.034 0.069 0.113

Godrej 0.004 0.003 0.002 0.003 0.014

Marico 0.01 0.011 0.015 0.032 0.045

Dabur 0.011 0.007 0.004 0.015 0.018Table 14: Accounts Receivables to Enterprise Value ratio

FIGURE 15: ACCOUNTS RECEIVABLES TO ENTERPRISE VALUE RATIO

Active working capital management brings a reduction in the operating costs of managing

inventories and receivables, thus improving liquidity. This strengthens the balance sheet, leading toimprovement in the enterprise value and reducing the borrowing costs.

30


31/36

The company has historically had better management of account receivable which resulted in

better account receivable to Enterprise value ratio of Dabur as compared to industry average.

However industry and the other competitors have been improving on the same and the trend

suggests that the company might face tough competition in the management of accounts

receivables in the time to come.

Account Payables

In this section, we take a look at the Account Payables of the firm and compare that with the

industry averages. We will look at Account payables to sales ratio and number of days sales in

account payables for the same purpose.

Account Payables to Sales Ratio

2008

2007

2006

2005

2004

Dabur 0.28 0.22 0.23 0.26 0.22

Marico 0.16 0.24 0.15 0.12 0.12

Emami 0.21 0.14 0.13 0.09 0.06

GodrejConsumer

0.31 0.29 0.25 0.25 0.23

IndustryAverage 0.16 0.19 0.19 0.17 0.14

Table 15: Accounts Payables to Sales Ratio

31


32/36

FIGURE 16: ACCOUNTS PAYABLES TO SALES RATIO

This ratio is obtained by dividing the 'Accounts Payables' of a company by its 'Annual Net Sales'.

This ratio gives an indication as to how much of the suppliers money does a company use in order

to fund its Sales. Higher the ratio means that the company is using its suppliers as a source of

cheap financing. The working capital of such companies could be funded by their suppliers.

Accounts Payable to sales ratio of Dabur is much higher than the industry average. It is also better

than most of its competitors except for Godrej Consumer, as shown above. The ratio has improvedsignificantly from 2007 to 2008. This indicates a better management of the working capital by the

company. Only Godrej has a better ratio than Dabur. The company should try and improve this

ratio further.

No. of days sales in Accounts Payables

2008 2007 2006 2005 2004

Dabur 102 81 84 96 80

Marico 57 86 56 42 42

Emami 75 53 47 34 20

GodrejConsumer

113 107 91 91 85

IndustryAverage

57 70 68 63 50

Table 16: No. of Days sales in Accounts Payable

32


33/36

FIGURE 17: NO OF DAYS SALES IN ACCOUNTS PAYABLES RATIO

The number of days sales in accounts payables ratio of Dabur is also much better than the industry

average. It is nearly above the industry average by 45 days. Here also, only Godrej consumer has a

better figure than Dabur among the competitors.

33


34/36

Operating cycle and cash cycle

OperatingCycle

2008 2007 2006 2005 2004

Dabur 44 41 45 46 64

Godrej 59 50 45 42 35

Marico 58 52 50 48 47

Emami 50 49 65 78 77

Cash Cycle2008 2007 2006 2005 2004

Dabur -8 -5 -1 3 23

Godrej 6 6 -11 -11 -16

Marico 13 9 12 12 13

Emami 13 21 39 54 55

From the table and the illustration above it can be seen that Dabur have a negative cash cycle

which indicates the general nature of the industry that the company operates, ie FMCG goods

wherein the company is able to negotiate better credit terms from its suppliers and able to better

manage its working capital. The company had a major restructuring of its working capital policy in

2004-2005 wherein it started the restructuring at different levels

34

Stock

Arrives

Cash

Received

Goods

Sold

Cash

Payment

Receipt ofInvoice

Inventory Period

Accounts Payable Period

Accounts ReceivablePeriod

Cash Cycle(negative as cash is being received

before the cash payment)

Operating Cycle

52 days

14 days30 days


35/36

Cash Management - Cheques/ drafts received from customers in nearby places are sent for local

clearing to initially collect funds in these bank accounts. This reduces the average collection period

(as compared to the time it would take if customer cheques were first received at head office and

then sent for out-station clearing); thereby increasing the velocity of cash inflows. Funds thus

collected at the depot towns are each day transferred to the companys head-office (or corporate)

bank account. The company has a sweeping arrangement with the bank at head-office by which

any funds transferred from the depot towns are automatically applied towards settling the

companys cash credit loan from the bank and reducing its debit balance.

Debtors Management - Earlier these stockists used to enjoy five days credit period but now the

company has decreased the time frame to one day. For new stockists sales are normally made

through demand drafts. If a stockists cheque bounces, then the party has to make payment only by

demand-draft. If a party defaults on payment (or a partys cheques bounce) more than once, then

for all its transactions with Dabur India in the coming year the party would be required to make

payments only by demand-drafts. The rest 30 per cent of the turnover with stockists takes place at

remote places away from depot towns with no easy access to banks so that the anywhere cheque

system is logistically not possible. Such stockists may be allowed a credit period of up to 10 days.

On the average, the money is credited in companys bank account in 37 days. Institutions like

canteen, stores department (CSD), large stores, hotels and modern malls are offered soft payment

terms that may range from 15 to 90 days. Though such institutions are slower in making payments,

the higher profit margins on such sales more than make up the cost of extended credit. Where

longer credit terms must be offered as a part of the marketing strategy, the company often resorts

to factoring as a means of financing debtors. The factoring arrangements are made with banks or

specialized factoring companies. In these cases, the company makes sure that profit margins from

such sales are high enough to cover the cost of factoring.

Supplier Management - The Company enjoys credit periods ranging from seven to 90 days from

the creditors, which can at times be extended up to 120 days. The suppliers use the bills

discounting to avail bank financing against their receivables from Dabur India and bear the bank

charges as well. However, if the credit period is extended beyond 120 days, the bills discounting

charges are borne by Dabur India.

35


36/36

References

o www.capitaline.com

o www.investopedia.com

o www.insight.com

o www.dabur.com

o Referred the annual reports of the last 5 years and other investor discussions

o Narender L. Ahuja and Sweta Gupta, 2005 - Working Capital and Cost Management
http://www.dabur.com/http://www.dabur.com/

Seniors FM Report Final2

Documents

Transcript of Seniors FM Report Final2